Assessing Default Risk on Bonds

If bonds can be so speculative, how can bond markets and bond buyers know the worthiness of their investment?

Since bonds are just another form of credit, financial information reporting gives potential bond buyers a glimpse into the bond issuer’s overall financial health, and allows comparisons to be made, conclusions to be drawn, and prices to be offered for these bonds. A bond issuer must provide enough information regarding its financial health before going to the market to find credit. Much (but not all) of this financial information can be found by carefully reading the bond’s prospectus, and consulting an adviser. The prospectus covers many aspects of the bond and corporate entity’s financial picture, and may provide information to help an investor decide whether to purchase the bond.


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